Producers will soon vote on milk marketing reforms that will raise the price of milk we drink. The USDA recently released a final decision on the amendments for on each of the 11 Federal Milk Marketing Orders.
This reform is part of the modernization of the Federal Milk Marketing Orders the dairy industry has been asking for and it’s been a couple of years in the making. The recommendations are part of USDA’s administrative rule making process. If passed by producers, it would eliminate Congress from having to include order reform in the new farm bill and hopefully provide fairer pricing.
USDA has announced that the amendments to the final recommendations for the Federal Milk Marketing Orders are minor. However, the overhaul of the pricing system by USDA stands to have a significant impact on what producers receive for milk. The biggest change in the overall proposal is in Class I formula to use the higher of the Class III or Class IV price as the base price mover.
“That higher of in terms of that Class I price is a pretty big change because right now we are at an average of the two with an added 74 cents, so this will change how that Class I price is calculated,” says Erica Maedke, Vice President of Insights, EverAg
She says component pricing would change, allowing producers to get paid more for fat and protein in the milk, plus the proposal updates make allowances.
“We’re all living with a lot of inflation that we’ve seen over the last couple of years,” Maedke adds. “Dairy processors are not immune to much of that inflation, whether it’s wages, packaging, borrowing costs. So, the make allowances in the formulas are increasing for all of the dairy products which will provide more money to help dairy processors cover their costs.”
And there’s a major structural change in the Class III formula away from using the average of both cheese blocks and barrels for pricing.
“The big change is to take out the barrels, so Class III pricing will be based only on block prices,” Maedke says.
Finally, USDA created a special pricing category for extended life beverages.
She says USDA estimates the overall cost increases on Class I milk will be over $4 billion but the impact per operation will vary based on their location and processor.
“The general expectation is that all dairy producers will see an increase in their baseline minimum prices. Now if that actually shows up on their check depends upon their milk buyer and if that pricing flows through,” Maedke says.
As far as the impact on consumers, International Dairy Foods Association analysis suggests that the average gallon of milk will only increase by 11 cents.
If passed the rules go into effect in the second quarter of 2025.
Your Next Read: Milk Marketing Makeover: What You need to Know to about new FMMO Reforms
